How to Spot and Avoid Mortgage and Refinancing Scams
Written by Gloria Martinez
Mortgages and refinancing both involve massive sums of money. And where there’s big money, you can expect there to be a bunch of predators sniffing about, trying to make a quick buck through less-than-ethical means. According to the CoreLogic Annual Fraud Mortgage Report, there’s a high-risk fraud environment right now (post-pandemic): 1 in 120 applications contains fraud. You must be on your guard to avoid falling prey to these scam artists and thieves.
Below, you can find the lowdown on mortgage and refinancing scams, including advice on
Understand the ins and outs of mortgages and refinancing
A mortgage is likely the single-biggest purchase you’ll ever make. It’s worth your time to read up on mortgages, including what to expect throughout the process and what a “good” mortgage looks like. It’s key to not only securing good terms on your loan but also to spotting bad deals and scams. The Consumer Financial Protection Bureau offers useful resources you should consult before applying for a mortgage.
Refinancing is switching out your existing mortgage debt for another with different terms. This strategy can, sometimes, save you a great deal of money. Again, learning more about refinancing – including when it’s worthwhile and when it isn’t – can help you spot bad deals and scams.
Be on the lookout for red flags
Every mortgage and refinancing scam has certain red flags. Spotting these telltale signs of fraud will help you avoid it:
● “Too good to be true”: When the mortgage or refinancing offer deviates too much from the
market standard, it could be a scam. Watch out for too-low interest rates, too-high mortgages,
too many assurances (or guarantees), and too-favorable terms in general.
● Terms not being honored: You should receive an initial “Good Faith Estimate” (GFE) from
reputable lenders with itemized details about your loan. If your final offer doesn’t match these
GFE terms, it could be a scam.
● Suspicious behavior or requests: When the lender makes requests that don’t follow the typical
process – such as asking for your bank details or personal information upfront or asking you to
sign a form with blank lines – you could be being targeted by a scammer.
Know common mortgage and refinancing frauds
Some mortgage and refinancing scams are more common than others, meaning you are more likely to encounter them. Here are three common ones:
● Rescue scams: People facing foreclosure are often targeted by “foreclosure rescue agencies”
offering (fake) help to allow them to keep their homes. The FDIC explains these in detail.
● Bait-and-switch: Bait-and-switch mortgages involve the lender changing the initially agreed-
upon terms to get you to pay more.
● Loan flipping: Loan flipping is a refinancing scam where the lender convinces you to
continuously refinance your home for supposedly-better terms, while they profit from
Follow these best practices
Whether you’re applying for a mortgage or a refinancing option, consider following these guidelines:
● Perform a background check: First, make sure your lender is both legitimate and reputable.
Verify their contact details, licensing, and track record.
● Get it in writing: Ask for a “Truth-in-lending disclosure” as well as a GFE from your lender. Make sure everything matches up.
● Double-check the terms: Deep dive into the nitty-gritty of your contract. Look at details like
prepayment penalties, purchase points, interest rates (fixed or variable), and other key lending-
● Shop around: Finally, approaching multiple lenders can help. You can compare offers, spot
inconsistencies, and spot the most promising ones.
● Never overshare: Don’t share more details than you absolutely must. If someone is acting
suspiciously, you may be well served to contact the authorities.
It pays to do your homework when it comes to mortgages and refinancing. It can be a little dull, but it will work in your favor in the long run. Remember – always work with reputable lenders and refinancers.
Also, don’t ignore your intuition (aka gut feeling) about anything you’re getting into. If it feels off, it well could be.